ADIA reduces assets held by external managers by 5%

The sovereign wealth fund of the United Arab Emirates has cut the amount of its assets managed by external managers to 60 percent from 65 percent further signaling its intent to handle more of its own investments directly. 

Abu Dhabi Investment Authority (ADIA), the preeminent, sovereign wealth fund of the United Arab Emirates, has again cut the amount of its assets managed by external managers by 5 percent.

ADIA revealed in its 2015 annual review, published this week, that approximately 60 percent of its assets are currently managed by external managers. The state fund previously had 65 percent of its assets on the books of external fund managers.

In a clear strategy, which has been reported in its annual reviews over the last six years, ADIA has been reducing the proportion of its assets which are managed by external managers. Since 2009, when the percentage of assets managed by external fund managers was 80 percent, the state fund has been gradually reducing the figure by roughly 5 percent every two years as it positions itself as more of a direct investor in the asset class.

The 40-year-old sovereign wealth fund had traditionally heavily invested in property, for instance, via external fund managers. But, following the global financial crisis, under then-new hire Bill Schwab, ADIA grew its Real Estate Department (RED) and take on more direct positions in property transactions.

ADIA has never published how much it has in assets, but the Sovereign Wealth Fund Institute estimates the figure to be approximately $773 billion of investments. This makes ADIA the world’s second largest sovereign wealth fund behind Norge Bank Investment Management, the steward of the $873 billion Government Pension Fund Global, the Norwegian sovereign wealth fund.

But ADIA is the world’s largest institutional investor in private real estate with $38.6 billion of investments, according to PERE’s Global Investor 30 ranking. In fact, the state fund has increased the value of its property holdings by 14.4 percent, from $33.75 billion, in the four years since PERE’s annual investor ranking began.

There had been concerns earlier this year that the fall in the value of oil would mean a tailing off of ADIA’s real estate investments. In February, ADIA’s US real estate head of investment, Tom Arnold, said that despite oil prices in 2015 slumping to their lowest level since 2002, the firm’s real estate investment had not been affected. Arnold said the fund had invested about $10 billion of equity in real estate in 2015, adding that he did not expect that to decrease in the years ahead.

But its activity over the last year contradicts those concerns however. In fact, 2015 marked some landmark real estate transactions for ADIA, a prime example being the sale of a 6.6 percent stake in Germany’s largest private home owner Deutsche Annington for €750 million in April.

Despite further concerns about the slowdown in China’s economy last year, ADIA still managed to seal one of the largest deals in Asia in 2015 when it acquired a 50 percent stake in three prime hotels in Hong Kong for HK$18.5 billion ($2.3 billion; €2 billion).

On the management front, the fund has been shoring up its recruitment efforts as, year by year, it moves to manage more assets in-house.

In 2011, ADIA combined RED with its Infrastructure department to create the dual purpose Real Estate and Infrastructure department but it still reports its target asset allocations separately.

For real estate, ADIA has a target allocation of 5 percent to 10 percent, a figure which has remained unchanged since 2011, while for infrastructure the state fund has a target of between 1 percent and 5 percent. For private equity, the fund targets between 2 percent and 8 percent of its assets allocated.

The fund also reported in its review that its 20-year annualized returns for 2015 was 6.5 per cent, down on the previous year when the figure was 7.5 percent. Meanwhile, its 30-year annualized return was 7.5 percent, down 8.4 percent in 2014.